2024 (11) TMI 1444 - HC - Income Tax

Validity of assessment order as violated the principles of natural justice by not providing the petitioner an opportunity to respond to information relied upon in the assessment - HELD THAT - As respondent is incorrect in stating there is no violation of Natural Justice. For the assessment proceedings u/s 143(2) the respondent had granted personal hearings . Thereafter the petitioner was directed to file various details and the petitioner had filed through e-portal. After filing the same the respondent ought to have granted personal hearing but the respondent failed to do so. The contention of the respondent after filing the various details personal hearing is not necessary is erroneous and unacceptable. Therefore there is clear violation of principles of natural justice. Having held there is violation of principles of natural justice then the contention of the respondent that there is alternative remedy of statutory appeal ought to be rejected. Since if there is any violation of principles of natural justice then the petitioner is having right to invoke writ jurisdiction. Addition u/s 68 - section 115BBE applied in this case - contention raised by the Learned Senior Counsel is that the u/s 115BBE the rate of tax imposed is increased from 30% to 60% and the same is applicable with effect from 01.04.2017 onwards as per the amendment - HELD THAT - Nowhere it is stated that due to demonetization the unaccounted money ought to be charged 60% rate of tax. It only states that step had been taken to curb black money by withdrawing Specified Bank Notes of denomination of Rs. 500 and Rs. 1000. And also states the people may find illegal ways of converting their black money into black again hence as per experts advice heavy penalty ought to be levied. From the language of the object that instead of allowing people to find illegal ways of converting their black money into black again it is evident that the government is intended to impose the same for future transactions. Especially the use of word again in the object would clearly indicate it is for future transactions i.e. from 01.04.2017. Therefore this Court is of the considered opinion that the revenue is empowered to impose 60% rate of tax for the transactions from 01.04.2017 onwards and not prior to the said cut-off date. And for prior transaction the revenue is empowered to impose only 30% rate of tax. Petitioner as deposited the cash available with it and the cash collected for the repayment of loan wherein the said depositors had deposited the Specified Bank Notes - There was a plea by the writ petitioner that they had collected only repayment from the borrowers during the window period for the particular month alone. If the previous year collections are compared then there will not be any variation. On perusal of the assessment order it is seen that the respondent has not compared the statement with the previous year. When there is a plea to compare the same with the previous year failing to consider the said plea then it is an erroneous order. Therefore the matter is remitted back for comparing the earlier statement of accounts. The respondent shall grant personal hearing. Hence the impugned assessment order is set aside. The matter is remitted back to the respondent to consider the plea of the petitioner thereafter pass an order. The said exercise shall be completed within a period of 12 weeks. The petitioner shall cooperative with the revenue.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

1. Whether the assessment order dated 31.12.2019 violated the principles of natural justice by not providing the petitioner an opportunity to respond to information relied upon in the assessment.

2. Whether the application of the amended Section 115BBE of the Income Tax Act, which prescribes a 60% tax rate, was retrospective and applicable to transactions prior to 01.04.2017.

3. Whether the unexplained cash credit addition of Rs. 99,50,749/- under Section 68 was justified without the petitioner being given an opportunity to explain the source of cash deposits during the demonetization period.

4. Whether the writ petition was maintainable despite the availability of an alternative statutory appellate remedy.

ISSUE-WISE DETAILED ANALYSIS

1. Violation of Principles of Natural Justice

Relevant Legal Framework and Precedents: The principles of natural justice require that a party be given an opportunity to respond to evidence or information that is relied upon against them. Section 142(3) of the Income Tax Act mandates that any material collected during assessment should be shared with the assessee for their response.

Court's Interpretation and Reasoning: The Court found that the respondent relied on information from banks regarding cash deposits without providing this information to the petitioner. This omission constituted a violation of natural justice as the petitioner was not given a chance to contest or explain the information.

Key Evidence and Findings: The assessment order stated that details of cash deposits were obtained from banks, but these details were not shared with the petitioner.

Application of Law to Facts: The Court held that the failure to provide the petitioner with the bank information relied upon in the assessment was a breach of natural justice principles.

Treatment of Competing Arguments: The respondent argued that the petitioner already had access to the bank details, but the Court rejected this, emphasizing the need for transparency and opportunity to respond.

Conclusions: The Court concluded that the assessment order violated principles of natural justice and required reconsideration.

2. Retrospective Application of Section 115BBE

Relevant Legal Framework and Precedents: Section 115BBE was amended to increase the tax rate from 30% to 60%, effective from 01.04.2017. The question was whether this amendment applied to transactions during the demonetization period (08.11.2016 to 31.12.2016).

Court's Interpretation and Reasoning: The Court examined the legislative intent and the language of the amendment. It concluded that the increased tax rate was intended for transactions from 01.04.2017 onwards, not retrospectively.

Key Evidence and Findings: The Court referred to the objects and reasons of the Taxation Laws (Second Amendment) Bill, 2016, which suggested the amendment targeted future transactions.

Application of Law to Facts: The Court determined that the 60% tax rate could not be applied to transactions before 01.04.2017, thus favoring the petitioner's argument.

Treatment of Competing Arguments: The respondent contended the amendment was applicable to the assessment year 2017-18, covering the demonetization period. The Court disagreed, focusing on the amendment's effective date.

Conclusions: The Court held that the 60% tax rate was not applicable to the petitioner's transactions during the demonetization period.

3. Justification of Unexplained Cash Credit Addition

Relevant Legal Framework and Precedents: Section 68 of the Income Tax Act allows addition of unexplained cash credits to income. The petitioner contested the addition of Rs. 99,50,749/- as unexplained cash credit.

Court's Interpretation and Reasoning: The Court noted that the petitioner claimed the deposits were from loan repayments and existing cash balances, which required verification.

Key Evidence and Findings: The assessment order did not compare the petitioner's current deposits with past patterns to identify any anomalies.

Application of Law to Facts: The Court found the assessment order lacked a comparative analysis with previous years, which was necessary to substantiate the unexplained credit claim.

Treatment of Competing Arguments: The petitioner argued that their deposits were consistent with past patterns, while the respondent failed to provide comparative analysis.

Conclusions: The Court directed the assessment to be reconsidered with a proper comparison of deposit patterns.

4. Maintainability of Writ Petition

Relevant Legal Framework and Precedents: Generally, writ petitions are not entertained if an alternative statutory remedy is available, unless there is a violation of natural justice.

Court's Interpretation and Reasoning: The Court recognized the violation of natural justice as a valid ground for maintaining the writ petition, despite the availability of an appellate remedy.

Key Evidence and Findings: The procedural lapses in the assessment process justified the invocation of writ jurisdiction.

Application of Law to Facts: The Court held that the breach of natural justice warranted judicial intervention through a writ petition.

Treatment of Competing Arguments: The respondent cited precedents advocating for the use of appellate remedies, but the Court prioritized the natural justice violation.

Conclusions: The writ petition was deemed maintainable due to the procedural violations identified.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "When the details relied on by the respondent and the details in possession of the petitioner tallies with each other ought to be seen, for the same an opportunity ought to be granted."

Core principles established: The principles of natural justice require full disclosure of relied-upon evidence, and retrospective application of tax amendments must be clearly legislated.

Final determinations on each issue: The Court set aside the assessment order due to natural justice violations and remitted the matter for reassessment, directing a comparative analysis of deposit patterns and confirming that the 60% tax rate under Section 115BBE was not applicable to transactions before 01.04.2017.