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2024 (4) TMI 941 - HC - Income TaxDeemed income u/s 56(2)(x) - Defective Show cause notice - Addition of Unexplained investment u/s 69 - charged to tax u/s 115BBE - stamp duty value of the said flat unexplained - case was selected for scrutiny under CASS to examine Capital Gains Deduction Claimed - SCN issued why the stamp duty value of the said flat should not be treated as deemed income of petitioner u/s 56(2)(x) and deduction u/s 54F of the Act be denied - order passed in which Respondent No. 3 proposed to treat the entire stamp duty value of the said flat as unexplained investment u/s 69 and charged to tax u/s 115BBE of the Act. As submitted Development agreement was executed by and between the owner of the building owners of the building agreed to grant development rights in respect of the building and agreed to permit the developer to develop the property on terms and conditions mentioned therein, wherein the developer was required to provide permanent alternate accommodation to the tenants/occupants and as mandated by Maharashtra Housing and Area Development Authority (MHADA), the developer entered into permanent alternate accommodation agreement with the tenants/occupants. HELD THAT - Admittedly, no notice has been issued to assessee/petitioner calling upon assessee to show cause whether the entire stamp duty value be treated as unexplained investment under Section 69 of the Act. In the affidavit in reply, the answer given to this allegation of petitioner that no notice was given to show cause under Section 69 of the Act is that the assessment was getting barred by limitation and there was no time for further show cause notice and hence the Faceless Assessing Officer (FAO) has passed the assessment order after considering all the submissions and possible aspect of the case and agreement value of the new purchased property is treated as unexplained investment under Section 69 of the Act and added to the total income of assessee. In the assessment order though there is reference to Section 56(2) (x) of the Act and the reply/objections filed by petitioner in response to the show cause notice, in the operative part there is no reference to Section 56(2)(x) of the Act. The courts have time and again held that issuance of show cause notice is not an empty formality. Its purpose is to give reasonable opportunity to the affected persons to effectively deal with the allegations in the show cause notice. In our view, even the show cause notice dated 23rd August 2022 is defective in as much as even though it had reference to Section 56(2)(x) of the Act, it did not mention whether the AO proposed to treat the stamp duty value as deemed income of assessee under clause (a) or clause (b) of Section 56(2)(x) of the Act. This is because both are separate provisions and under either of these two clauses the stamp duty value could be treated as deemed income. By not specifying whether Section 56(2)(x)(a) or Section 56(2)(x)(b) of the Act was applicable, the A.O. first of all has not given reasonable opportunity of showing cause to the assessee. Assessee would be totally unaware of the grounds which had prompted the A.O. to arrive at a prima facie conclusion and issue show cause notice. The power that the A.O. had was required to be executed properly. Moreover in the assessment order that is impugned in the petition, the A.O. has chosen to give Section 56(2)(x), a go by and treat the stamp duty value of the flat as from unexplained source under Section 69 of the Act. There is no reference to Section 56(2)(x) of the Act in the operative part of the order. Thus the impugned order cannot be sustained. The allegations in the affidavit in reply that assessee has claimed tenancy rights as colourable device in order to get an exemption under the provisions of the Act and evade the tax liability also cannot be accepted because if the A.O. had evidence to that effect the same should have been stated in the show cause notice.
Issues involved:
The issues involved in the judgment are related to the assessment of income tax for the Assessment Year 2020-21, specifically focusing on the treatment of stamp duty value of a flat under Section 56(2)(x) and Section 69 of the Income Tax Act, 1961. Details of the Judgment: Issue 1: Show Cause Notice and Assessment Order The petitioner filed a return of income for the Assessment Year 2020-21, which was selected for scrutiny to examine "Capital Gains Deduction Claimed." A Show Cause Notice was issued calling upon the petitioner to explain certain variations prejudicial to their interest. The assessment order dated 29th September 2022 proposed to treat the stamp duty value of a flat as unexplained investment under Section 69 of the Act. Issue 2: Defects in Show Cause Notice and Assessment Order The High Court observed that the Show Cause Notice and the assessment order had deficiencies. The Show Cause Notice did not specify whether the stamp duty value would be treated as deemed income under Section 56(2)(x)(a) or (b) of the Act. The assessment order did not refer to Section 56(2)(x) in the operative part, raising concerns about the lack of clarity in the proceedings. Issue 3: Compliance with Legal Procedures The Court emphasized that the issuance of a show cause notice is essential to provide a reasonable opportunity for affected persons to address the allegations effectively. Lack of specificity in the notice regarding the applicable provision under Section 56(2)(x) hindered the petitioner's ability to respond adequately. The assessment order's deviation from Section 56(2)(x) without proper reference further highlighted procedural lapses. Issue 4: Legality of Assessment Order The Court concluded that the impugned assessment order could not be sustained due to procedural irregularities and lack of clarity in the communication of grounds for assessment. Allegations of the petitioner using tenancy rights as a device to evade tax liability were deemed unsubstantiated as evidence supporting such claims was not presented in the show cause notice. Issue 5: Disposition of the Petition In light of the above findings, the Court made the Rule absolute and issued a writ to quash the impugned assessment order dated 29th September 2022. The respondent was directed to issue a supplementary show cause notice if required, allowing the petitioner to exercise their rights in accordance with the law. Conclusion The petition was disposed of with the Court's decision to quash the assessment order, highlighting the importance of adherence to procedural fairness and clarity in tax assessment proceedings.
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