Calcutta HC: Dept’s Failure to Serve Section 69A Notice Invalidates Assessment Order

The assessment order has been quashed by the Calcutta High Court on the foundation that the department has losses to place the taxpayer on the notice concerning the addition u/s 69A of the income tax.

It was noted by the bench of Justice Raja Basu Chowdhury that the judgment incurred via the respondent department as shown in the assessment order does stand corrupt via the causes of failure on the end of the department to put the applicant on notice concerning the addition under section 69A. As the assessment order breaches the principles of natural justice, it is not enforceable in statute.

Concerning the AY 2016-17 the applicant has been provided with the notice asking the applicant to show cause as to why a sum of Rs 1,50,45,00,000 must not be added back to the total income of the applicant as not elaborated cash credits u/s 68 of the act.

The applicant duly answered the notice and also the proceeding culminated in an assessment order. Under the assessment order a sum of Rs 1,50,45,00,000 was added back to the income of the applicant for the assessment year for the unexplained money u/s 69A of the Income Tax Act.

It was argued by the applicant that in the SCN the variation suggested shows that the amount of Rs 1,50,45,00,000 must be added back to the total income of the applicant as unexplained in the cash credits u/s 68. Even after the fact that the applicant has elaborated the situation as to why the addition must not be produced, the faceless assessing unit via its order, has added back the amount as unexplained money u/s 69A.

It was argued by the taxpayer that the provisions of sections 68 and 69A are independent of one another. A Show Case Notice (SCN) has been issued via the respondents for adding back to the income of the applicant a sum of Rs 1,50,45,00,000 as ‘unexplained cash credits’ u/s 68, cannot have passed the final order by adding back the said amount as ‘unexplained money’ u/s 69A without allowing the applicant to explain.

It was argued by the department that the SCN was being issued via considering Rs 1,50,45,00,000 as unexplained cash credits under section 68, the final order was passed regarding the sum as unexplained money u/s 69A. As the applicant has another remedy in the form of an appeal, no interruption is directed.

Section 68 mentioned that when the sum is encountered credited in the taxpayer’s books kept for the last year in the lack of any explanation for the nature and the source thereof or when the elaboration seems to be unsatisfactory then the same sum credited might be levied via the income tax as the taxpayer’s income for the last year.

It was cited under section 69A that when it is discovered that the taxpayer is the owner of any money, jewellery, or other valuable articles and it is not recorded in the books of accounts, if any, upheld via him for any income source and in the absence of any explanation for the nature and source of acquisition of it or in the lack of the satisfactory explanation then the same shall be considered to be the taxpayer’s income for the fiscal year.

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The court stated “I find that the language used in Section 69A of the said Act clearly required the assessee to be allowed to explain. As such, even if the respondents thought 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 the 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 unexplained money under Section 69A of the said Act,”

It was remarked by the court that in the absence of any notice the applicant was taken by surprise and refused the chance to explain. The applicant might or might not secure any explanation to propose, however the same does not for the court to decide, nor can the department prejudge the same.

It was ruled by the court that the order is considered as a show cause. But the same would not avert the respondents from taking any other point or asking any other grounds if suggested. In these matters, a notice shall be needed to be provided as an addendum to the Show Case Notice to the applicant. These addendums if any should get provided within 15 days from the date.