Assessee to Be Given Opportunity to Explain Before Switching Additions From u/s 68 to 69A | HC

Case Details: Vishal Jhajharia vs. Assessment Unit, Income-tax Department Faceless Assessment Centre - [2024] 164 taxmann.com 781 (Calcutta)

Judiciary and Counsel Details

• Raja Basu Chowdhury, J.
• Abhratosh Majumdar, Sr. Adv., Avra Mazumder, Ms Alisha Das, Samrat Das & K. Ray for the Petitioner.
• Aryak Dutt for the Respondent.

Facts of the Case

The assessee received a notice for the relevant assessment year proposing to add a certain amount to the total income as unexplained cash credits under section 68. The assessee responded to the notice explaining why the addition should not be made. Despite the response, the Faceless Assessment Unit (NFAC) issued an assessment order, adding the said amount as unexplained money under section 69A instead of section 68.

Contending that this switch from section 68 to section 69A without prior notice violated the principles of natural justice, the assessee filed a writ petition before the Calcutta High Court.

High Court Held

The High Court ruled that the two provisions are entirely separate. Under Section 68, if a sum is credited to an assessee’s books for the previous year without an explanation regarding its nature and source, or if the explanation is unsatisfactory, the income tax authorities may treat that sum as the assessee’s income for the previous year.

In contrast, Section 69A applies when the assessee is found to possess money, jewellery, or other valuable assets not recorded in their accounts. If there is no explanation for the nature and source of these assets, or if the explanation provided is unsatisfactory, the assets will be deemed as income for that 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 and the assessee 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.

The language used in section 69A clearly required the assessee to be afforded an opportunity to explain. As such, even if the NFAC were of the opinion that in this case section 69A ought to be invoked, NFAC ought to have granted an opportunity to the assessee to explain at least prior to passing the assessment order. In the absence of any notice, the assessee was obviously taken by surprise and was denied the opportunity to appropriately explain.

Accordingly, the determination made by NFAC, as reflected in the assessment order, was vitiated. Since the above violates the principles of natural justice, the order impugned became unenforceable in law.

List of Cases Reviewed

• New Delhi Television Ltd. v. Deputy Commissioner of Income Tax, reported in (2020) 116 taxmann.com.151 (SC) [Para 8] – followed.