2024 (2) TMI 464 - HC - Income Tax

Validity of order of assessment as made in violation of the principles of natural justice - excess value of stock liable to be treated as unexplained investment, while adding the same to the total income invoking Section 69B - HELD THAT - We find merit in the submission of appellant that the proceedings leading up to the passing of the impugned order lacks clarity and has resulted in the appellant being led to believe that their response/ explanation in respect of the proposal to treat a sum as excess stock, except to the extent as accepted inasmuch as the Respondent had vide notice dated 16.08.2022 called for explanation only in respect of a sum of Rs. 29,36,013/-. This in turn has resulted in the appellant not putting forth any further explanation in respect of the alleged excess stock over and above Rs. 29,36,013/-, thereby resulting in violation of principles of natural justice. Rejection of the writ petition on the ground of availing of alternative remedy, it is trite law that Courts would be loathe to entertain a writ petition if alternate remedy is available. However, the rule of alternate remedy is a self-imposed restriction, to which the Courts have carved out exceptions some of them being violation of principles of natural justice, lack of jurisdiction and error apparent on the face of record inasmuch as we have already find that the impugned order suffers from violation of principles of natural justice and the same warrants interference under Article 226 of the Constitution of India. We are inclined to remand the matter back to the assessing authority, who shall grant one more opportunity to the appellant to put forth its explanation / objection in respect of excess stock, which has been treated as unexplained investment under Section 69B of the Act. Accordingly, the orders impugned in this appeal as well as in the writ petition, are set aside and the Respondent is directed to grant an opportunity of hearing to the appellant and to pass orders afresh, within a period of 12 weeks from the date of receipt of a copy of this judgment.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Availability of alternative remedy.
3. Assessment of excess stock as unexplained investment under Section 69B of the Income Tax Act.

Summary:

1. Violation of principles of natural justice:
The appellant, a partnership firm engaged in trading furniture and home appliances, challenged an assessment order claiming it was made in violation of the principles of natural justice. The appellant argued that they were misled to believe their explanation regarding stock variation was accepted, except for Rs. 29,36,013/-. The appellant responded only to this amount, believing the rest was accepted. The court found merit in this argument, noting that the appellant was not given a fair opportunity to explain the excess stock of Rs. 3,10,20,813/-, resulting in a violation of natural justice principles.

2. Availability of alternative remedy:
The court addressed the rejection of the writ petition on the grounds of the availability of an alternative remedy. It acknowledged that while courts generally avoid entertaining writ petitions when an alternative remedy is available, exceptions exist, such as violations of natural justice. Given the identified violation, the court deemed it appropriate to intervene under Article 226 of the Constitution of India.

3. Assessment of excess stock as unexplained investment under Section 69B of the Income Tax Act:
The appellant's case involved a survey under Section 133A of the Income Tax Act, leading to the issuance of notices under Sections 143(2) and 142(1). The assessment order added Rs. 3,10,20,813/- as unexplained investment under Section 69B, citing insufficient documentary evidence. The appellant contended that they were led to believe only Rs. 29,36,013/- was in question, affecting their ability to respond adequately. The court found the proceedings lacked clarity, leading to the appellant's misunderstanding and insufficient opportunity to explain the excess stock.

Conclusion:
The court set aside the impugned assessment order and the writ petition order, remanding the matter back to the assessing authority. The authority is directed to provide the appellant with a fresh opportunity to explain the excess stock and pass a new order within 12 weeks. The writ appeal was disposed of on these terms, with no costs, and the connected miscellaneous petition was closed.