When show cause notice proposed addition u/s 68 as unexplained cash credits, in assessment order addition can not be made u/s 69A as ‘unexplained money’.
In a recent judgment, Hon’ble High Court at Calcutta has held that when the show cause notice proposed a variation as ‘unexplained cash credits’ under Section 68, addition u/s 69A towards ‘unexplained money’ could not have been made in the assessment order without affording the petitioner an opportunity to explain.
ABCAUS Case Law Citation:
ABCAUS 4121 (2024) (06) HC
In the instant case, the Petitioner/assessee had filed a writ petition, inter alia, challenging the Assessment order passed under Section 147 read with Section 144 and 144B of the Income Tax Act, 1961 (the Act).
The case of the Petitioner was that he was served with a show cause notice calling upon to show cause as to why a sum specified therein should not be added back to the total income of the petitioner, as unexplained cash credits under Section 68 of the Act. The petitioner had duly
responded to the said notice by a communication in writing and ultimately the proceeding culminated in an assessment order passed by the Faceless Assessing Unit whereunder the said sum was added back to the petitioner’s income for the aforesaid Assessment Year on account of unexplained money under Section 69A of the Act.
By referring to the provisions of Section 68 and 69A of the Act, it was submitted that provisions stand independent of one another. The Revenue having issued a show cause for adding back income as ‘unexplained cash credits’ under Section 68 of the said Act, could not have passed the final order by adding back the said amount as an ‘unexplained money’ under Section 69A of the said Act, without affording the petitioner an opportunity to explain. It was submitted that the aforesaid constitutes violation of principles of natural justice and as such, the statutory remedy in the form of an appeal cannot stand as a bar for Hon’ble High Court to entertain the present writ petition.
By placing reliance on the judgment delivered by the Hon’ble Supreme Court it was submitted that in a similar set of facts, the Hon’ble Supreme Court taking note of the failure on the part of the revenue authorities to notify an assessee in respect of the grounds on which variation was being proposed had been pleased to quash the same; though, opportunity to the revenue authorities was provided to issue fresh notice, if otherwise permissible in law.
It was submitted that the order impugned cannot be sustained and the same should be set aside.
The Hon’ble High Court observed that the two provisions namely section 68 and section 69A 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.
The Hon’ble High Court further observed that in the case in hand 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 Act.
The Hon’ble High Court opined that the language used in Section 69A of the Act clearly requires the assessee to be afforded with an opportunity to explain. As such, even if the Revenue was of the opinion that in this case Section 69A of the said Act ought to be invoked, in my view the Revenue 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 should not be added back as an unexplained money under Section 69A of the Act. In absence of any notice, the petitioner was obviously taken by surprise and was denied the opportunity to appropriately explain.
The Hon’ble High Court further added that the petitioner may or may not have any explanation to offer but the same is not for this Court to decide, nor could the Revenue prejudge the same.
The Hon’ble High Court noted that the Hon’ble Supreme in somewhat similar set of facts was of the view that although, the department may not be prevented from raising fresh ground which did not find place in the show cause notice, however, before a final decision is taken for the grounds which are not reflected in the show cause, the assessee must be put on notice and the assessee cannot be taken by surprise.
The Hon’ble High Court opined that the determination made by the Revenue as was reflected in the assessment order stood vitiated by reasons of failure on the part of the revenue authorities to put the petitioner on notice in respect of addition under Section 69A of the said Act. Since, the above was violative of the principles of natural justice, the order impugned became unenforceable in law and was declared as such.
However, the Hon’ble High Court opined that since, the petitioner was put on notice now, the Revenue should afford an opportunity to the petitioner to explain prior to taking a final decision in the matter.
Accordingly, the Hon’ble High Court directed that the order impugned be treated as a show cause. This, however, shall not prevent the Revenue from taking any additional point or raising any additional grounds if so advised. In such case, however, a notice would be required to be served as an addendum to the show cause notice, to the petitioner. The Faceless Assessing Unit was also directed to ensure that the portal is activated for the petitioner to submit its appropriate response.
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