Case Law Details
Gowkha Dharanendraiah Jwalakumar Vs ITO (Karnataka High Court)
Karnataka High Court Quashes Reassessment Completed Without Considering Assessee’s Reply to Show Cause Notice
The Karnataka High Court set aside the reassessment order passed under Sections 147 read with 144B after finding that the Assessing Officer had failed to consider the assessee’s reply submitted in response to the show cause notice before completing the assessment.
The assessee had uploaded a detailed response along with supporting documents on the Income-tax portal on 20.03.2026 in response to the show cause notice dated 16.03.2026. However, while passing the assessment order on 23.03.2026, the Assessing Officer proceeded on the erroneous premise that the assessee had not substantiated the source of cash deposits and made an addition of ₹91.90 lakh under Section 69A, without examining the reply already filed.
Holding that the assessment could not be sustained when the assessee’s response had not been considered, the Court quashed the assessment order, demand notice and penalty notice, and directed the Assessing Officer to consider the reply and documents uploaded by the assessee on 20.03.2026 and thereafter pass a fresh order in accordance with law.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
The outcome in this writ petition must turn on a short question viz., whether the first respondent could have completed the assessment proceedings on the ground that the petitioner has not responded to the Show Cause Notice. Sri Aravinda S.N., the learned counsel for the petitioner, and Sri M.Thirumalesh, a learned standing counsel for the respondents, who is called upon to accept notice, are heard. When served with a Show Cause Notice dated 16.03.2026, the petitioner, as could be seen from Annexure-C, has filed response on 20.03.2026. The assessment is closed on 23.03.2026 observing thus:
“However, on verification, it is noticed that the assessee has not furnished any corroborative evidences such as confirmations from borrowers, PAN details, loan agreements or independent verification to substantiate the identity and creditworthiness of the parties and genuineness of such cash transactions. The cash book produced is a self-serving document and remains unverifiable. Further, the magnitude of cash deposits disproportionately high and the explanation remains unsubstantiated. Accordingly, the source of cash deposits amounting to Rs .91,90,500/ – remains unexplained and the same is treated as unexplained money under Section 69A of the Income – Tax Act, 1961 and added to the income of the assessee.”
The Assessing Officer has closed the assessment proceedings without considering the response on 20.03.2026. This Court must opine that there is reason for interference on this ground. The first respondent should have considered the reply and the documents, uploaded on the portal and then concluded assessment. Hence, the following:
ORDER
The petition is allowed-in-part quashing the Assessment Order dated 23.03.2026 [Annexures-A] and the subsequent Notices dated 23.03.2026 [Annexures- Al and A2] calling upon the first respondent to consider the response as uploaded on 20.03.2026 and pass necessary orders.
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