2025 (8) TMI 821 - AT - Income Tax

Assessment set aside for fresh hearing under Sections 69 and 56(2)(viib) due to lack of natural justice compliance

Gagandeep Kaur Nagi Versus ITO, Ward-1 (1). Jharkhand.

Gagandeep Kaur Nagi Versus ITO, Ward-1 (1). Jharkhand. - TMI 1. ISSUES PRESENTED and CONSIDERED Whether the addition of Rs. 12,00,000 as undisclosed investment under Section 69 of the Act is justified in absence of documentary evidence supporting the purchase consideration paid for the immovable property. Whether the addition of Rs. 27,26,800 as income from other sources under Section 56(2)(viib) of the Act, based on the difference between the stamp duty value and the declared purchase price, is sustainable. Whether the appellate authority was justified in dismissing the appeal for non-compliance with Section 249(4)(b) of the Act regarding payment of advance tax when the assessee had not filed a return of income. Whether the assessment order passed under Section 147 read with Section 144 of the Act, on a time-barred basis and without adequate enquiry or opportunity of hearing, is valid and in accordance with principles of natural justice. The scope of remand and the necessity of de novo adjudication by the Assessing Officer in light of incomplete factual inquiry and procedural lapses. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Addition of Rs. 12,00,000 as undisclosed investment under Section 69 - Legal Framework and Precedents: Section 69 of the Act empowers the Assessing Officer (AO) to treat any amount found to be invested by the assessee, for which the source is not satisfactorily explained, as undisclosed investment liable to tax. The burden lies on the assessee to provide satisfactory evidence to prove the genuineness of the transaction. - Court's Interpretation and Reasoning: The AO relied on bank account details showing payments of only Rs. 20,00,000 to the seller, whereas the purchase deed reflected Rs. 32,00,000. The assessee had submitted loan papers and bank statements as proof, but AO found only bank account details and no loan documentation. Given the discrepancy and lack of documentary evidence for the balance Rs. 12,00,000, the AO invoked Section 69 to add the amount as undisclosed investment. - Key Evidence and Findings: The assessee's submission dated 28.03.2022 included bank statements and purported loan papers; however, AO did not find loan papers on record. The assessment was completed on 30.03.2022, two days after the submission, due to impending time bar. - Application of Law to Facts: The AO's addition was premised on incomplete verification and absence of loan documentation. The short time frame and lack of opportunity to the assessee to produce further evidence undermined the completeness of inquiry. - Treatment of Competing Arguments: The assessee argued that the addition was arbitrary and that the AO failed to conduct adequate enquiry or provide a proper hearing. The Revenue emphasized the discrepancy in payment and the absence of loan papers justifying the addition. - Conclusions: The Court found that the AO's action was premature and lacked adequate enquiry, especially given the short interval between submission and assessment. The addition under Section 69 was not upheld without proper investigation and opportunity to the assessee. Issue 2: Addition of Rs. 27,26,800 as income from other sources under Section 56(2)(viib) - Legal Framework and Precedents: Section 56(2)(viib) provides for taxation of income arising from receipt of consideration exceeding the fair market value (stamp duty value) of property, where no satisfactory explanation is provided by the recipient. - Court's Interpretation and Reasoning: The AO observed the stamp duty value of the property was Rs. 59,26,800, while the declared purchase price was Rs. 32,00,000. The difference of Rs. 27,26,800 was treated as income from other sources under Section 56(2)(viib). The assessee did not offer any plausible explanation for this difference. - Key Evidence and Findings: The discrepancy between stamp duty value and declared consideration was undisputed. However, the assessment was completed on a summary basis without full enquiry or opportunity for the assessee to explain or produce evidence. - Application of Law to Facts: The addition under Section 56(2)(viib) depends on the failure of the assessee to satisfactorily explain the difference. Given the procedural shortcomings and absence of detailed enquiry, the addition could not be sustained at this stage. - Treatment of Competing Arguments: The assessee challenged the addition as arbitrary and contended that the AO did not afford adequate hearing. The Revenue relied on the statutory provision and the unexplained difference in values. - Conclusions: The Court held that the addition under Section 56(2)(viib) was premature and required further factual adjudication with due opportunity to the assessee. Issue 3: Dismissal of appeal by NFAC/CIT(A) for non-compliance with Section 249(4)(b) - Legal Framework and Precedents: Section 249(4)(b) mandates that an appeal by an assessee who has not filed a return of income shall not be admitted unless the assessee pays an amount equal to the advance tax payable for the relevant assessment year. - Court's Interpretation and Reasoning: The NFAC/CIT(A) dismissed the appeal on the ground that the assessee had not filed a return and had not paid the requisite advance tax amount, thus non-compliance with Section 249(4)(b). - Key Evidence and Findings: The assessee had not filed a return for the relevant year. However, the Court noted that the taxable liability itself was uncertain due to the disputed additions and incomplete enquiry. - Application of Law to Facts: The Court observed that the applicability of Section 249(4)(b) depends on the existence of a taxable liability. Since the additions were questionable and the matter was pending detailed adjudication, the mandatory payment of advance tax could not be enforced to deny admission of appeal. - Treatment of Competing Arguments: The Revenue relied on the mandatory nature of Section 249(4)(b). The assessee argued that since the additions were arbitrary and bad in law, the advance tax liability was not established, and hence denial of appeal admission was unjust. - Conclusions: The Court set aside the dismissal of appeal for non-compliance with Section 249(4)(b), holding that the question of advance tax liability was premature and should be decided after proper adjudication. Issue 4: Validity of assessment order passed under Section 147 read with Section 144 on a time-barred basis without adequate enquiry or opportunity of hearing - Legal Framework and Precedents: Section 147 authorizes reassessment where income has escaped assessment. Section 144 empowers the AO to complete assessment based on best judgment if the assessee fails to comply with notices. Principles of natural justice require fair opportunity of hearing before adverse findings. - Court's Interpretation and Reasoning: The AO completed the assessment on 30.03.2022, two days after the assessee's submission on 28.03.2022, citing the impending time bar on 31.03.2022. The AO did not call for further evidence or provide an opportunity to explain the discrepancies fully. - Key Evidence and Findings: The assessment was summary and based on incomplete materials. The AO did not find loan papers but did not seek them further. The assessee was not afforded adequate hearing before making additions. - Application of Law to Facts: The Court emphasized that even in time-barred cases, the AO must conduct a fair and complete enquiry and afford opportunity of hearing. Summary assessment without such enquiry violates principles of natural justice and statutory mandate. - Treatment of Competing Arguments: The Revenue justified the summary assessment on grounds of time bar. The assessee contended it was arbitrary and violated natural justice. - Conclusions: The Court held that the assessment order was invalid insofar as it was passed without adequate enquiry and hearing. The matter required fresh adjudication. Issue 5: Scope and necessity of remand for de novo adjudication - Legal Framework and Precedents: Where the record reveals incomplete enquiry or procedural irregularities, appellate authorities may remit the matter to the AO for fresh adjudication in accordance with law and principles of natural justice. - Court's Interpretation and Reasoning: Given the incomplete enquiry, absence of loan papers on record, lack of opportunity to the assessee, and questionable applicability of Section 249(4)(b), the Court found it appropriate to remit the matter for fresh adjudication. - Key Evidence and Findings: The submissions by the assessee, time constraints, and procedural lapses were critical factors necessitating remand. - Application of Law to Facts: The Court directed the AO to conduct a thorough enquiry, verify all relevant documents including loan papers, provide adequate hearing, and pass a reasoned order in accordance with law. - Treatment of Competing Arguments: The Revenue's argument for finality was outweighed by the need for fair adjudication. The assessee's plea for opportunity and proper enquiry was upheld. - Conclusions: The Court set aside the appellate order and remanded the matter to the AO for de novo adjudication while ensuring compliance with principles of natural justice and statutory provisions.